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How To Form a Marketing Company With a Different Fiscal Year End and Have Flexibility To Move Your Tax Liabilities Into the Next Year
Setting up a business is hard work. And one of the more painful tasks is your taxes. It is essential to know how your fiscal year-end affects your business and what you can do. Here is more on how to form a marketing company with a different fiscal year-end and the flexibility to move your tax liabilities into the next year.
The Importance of the Fiscal Year
For your business, there is more than one option for year-end. In the fiscal year, this is the 12-month period used for accounting and tax purposes. A fiscal year applies to the same definition as a tax year for IRS purposes. Acceptable ones include:
- A normal calendar year of 12 consecutive months. This calendar year begins on January 1 and ends on December 31st.
- Another fiscal year ends on any last day of the month except December. This one also comprises 12 consecutive months.
- The last one does not have to finish on the last day of the month. This type of fiscal year varies from 52 to 53 weeks.
There are two ways most places decide for their fiscal year. One is to follow the place's natural calendar year, such as a school ending its year in June. The other way is helpful for accounting costs by using a non-calendar year.
Starting a New Business
One way to offset your tax liabilities is with a new business - as a marketing company. You must do this before the year is over, but remember that you can choose your fiscal year. The process allows you to form this marketing company with a different fiscal year-end and have the flexibility to move your tax liabilities into the next year.
Here is an example of this:
Form a Marketing LLC with a fiscal year-end of 9/30. Your operating company pays $XX to the marketing company in Q4 of its year-end (12/31). What we've done is taken a deduction in the operating company in the current year and moved it over as income to the marketing company, taxed in the following year.
Timing Matters
Consider these helpful points for tax deductions and liabilities, timing matters.
- Lower profits in a fiscal year can be had by taking the deduction from the year with higher profits
- Do the same thing when tax rates are the highest. If business tax rates are increasing in the upcoming year, take your deductions into the next year. This works to minimize your taxable income in that fiscal year.
- Take the deduction in the year when the deduction amount is higher. Some deductions change from year to year. Learning about these changes can save you money by allowing you to take the deduction when it is higher.
Forming a Marketing Company
Of course, you need to have the knowledge and experience to form a legitimate company to take advantage of moving your tax liabilities. Many operating companies already incur plenty of marketing costs throughout the year so the process just involves being thoughtful and deliberate.
It starts with setup and forming the LLC. Then you need to determine what expenses will qualify to move from the operating company to the newly formed marketing company. Then you should consider having monthly marketing fees paid from the operating company to the marketing company to show consistent revenue so the marketing company doesn’t appear to be a tax shelter.
Lastly you need to plan throughout the year and know the tax projection of the operating company so you can make a year-end payment to the marketing company to reduce the taxes of the operating company in the current year that now becomes income to the marketing company in the following year. Although this is just a timing difference and we still have the taxable income in the next year, the ultimate goal for a CPA is to accelerate deductions and defer income. This strategy is a little known tool that helps us accomplish that. It’s about being deliberate and purposeful.